mumbai prentation 17.4.2013 (session ii)

Presents

6th Knowledge Master Class

On

Understanding Service Tax Law Nuances

Conducted by

Dr. Sanjiv AgarwalFCA, FCS

Wednesday,17th April, 2013Mumbai © Dr. Sanjiv

Agarwal

1

Corporate Knowledge Foundation

SESSION – II

Scope of Taxation of Services

2

Corporate Knowledge Foundation

This Presentation Covers

• Scope of ‘Service’ under New Regime –

Inclusions / Exclusions, Services of Employees/

Directors/ employers/ Partners /Charge of Tax

• Declared Services including Valuation

• Bundled Services – Classification Issues

• Cross Border Services3

Scope of Taxation of Services

4

‘Service' has been defined in clause (44) of the section 65B and means –

any activity

For a consideration

carried out by a person for another

and includes a declared service (66E)

What is Service

55

Scope of services under Service Tax

Services on which Service Tax shall be attracted comprise of :

Those services which satisfy the definition of service u/s 65B (44) Nine specified declared services u/s 66E Those services which do not find place in negative list of services

u/s 66D Those services which are not exempt from levy of Service Tax

under Notification No. 25/2012-ST dated 20.06.2012

to be contd….

6

Services on which no Service Tax shall be payable comprise of :• Services which are specifically excluded from the scope of

definition of service itself u/s 65B(44)• 17 broad services specified in the negative list of services u/s

66D• Services which are exempt from levy of Service Tax under N.

No. 25/2012-ST dated 20.06.2012• Specified services otherwise exempt under specific

notifications• Activities where service provider and service receiver are in

non –taxable territory

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Scope of services under Service Tax

7

The New Taxability Concept

Taxable

3. Exemptions (39)

1. Non -

Taxable

territory

(POPS)

2. Negative list (17)

SERVICE FOR A CONSIDERATION

E - MAGIC TEST

E: EmployeeM: MoneyA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee

9 DE

CL

AR

ED

SE

RV

ICE

S

8

Activity must be for a consideration (nexus / reciprocity)

Activity – includes both activity as well as non-activity

Consideration – includes both monetary and non monetary consideration.

Two persons are involved –Service provider Service receiver

Only services provided by one person to another are taxable

Person – natural as well as artificial

What is Service

9

ActivityNot defined in the ActIn common understanding, activity includes –

An act done A work done A deed done An operation carried out Execution of an act Provision of a facility etc.

Activity could be active or passive and forbearance to actAgreeing to an obligation to refrain from an act or to tolerate an

act or a situation - listed as a declared service u/s 66E

What is Service

10

ConsiderationMeans everything received or recoverable in

return for a provision of service which includes -Monetary paymentNon-monetary paymentDeferred consideration

Under Indian Contract Act, 1872, Consideration means -

“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”

What is Service

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Activity for a Consideration Activity should be carried out by a person

for a considerationActivity without consideration like-

DonationGiftsFree charities

outside the ambit of serviceCharity for consideration would be service

and taxable unless otherwise exempted

What is Service

12

Money- 65B(33)

“Money" means legal tender, cheques, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheques, money order, postal or electronic remittance or any similar instrument but shall not include any currency that is held for its numismatic value

Actionable Claim –Section 3 of Transfer of Property Act, 1882

• Claim to unsecured debts• Claim to beneficial interest in movable property not in

possession of claimant• Right to insurance claim• Arrears of rent• Lottery claims

What is Service

13

Tax on Money Remittance (Circular No. 163 dated 10.7.2012)

No service tax on foreign currency remitted to India from overseas

Amount of remittance comprises moneyService excludes money transactionsEven fee for remittance is not taxable (POPS) Sender of money outside India - bank / company

remitting money is located outside IndiaFee charged by Indian bank - remitter located

outside India (not taxable as per POPS)

What is Service

14

Person-65B(37)"person" includes,––

• an individual,• a Hindu undivided family,• a company,• a society,• a limited liability partnership,• a firm,• an association of persons or body of individuals, whether

incorporated or not,• Government,• a local authority, or• every artificial juridical person, not falling within any of the

above

What is Service

15

Government – Not defined

Section 3 (22) of General Clause Act, 1897

Includes Central/State Government/ Union Territory

Actions taken in the name of President/ Governor

Most of services provided by Government are in

Negative List or reverse charge is applicable

What is Service

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'Service' does not include - any activity that constitutes only a transfer in title of goods or immovable

property by way of sale, gift or in any other manner.

Sale of developed plots is a service (Narne Constructions Pvt. Ltd. v UOI 2013 (29)STR 3 (SC)

a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution

a transaction only in money or actionable claim

a service provided by an employee to an employer in the course of the employment.

fees payable to a court or a tribunal set up under a law for the time being in force

What is Service : Exclusions

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This scope shall not apply to –

a) functions performed by M.P., M.L.A., Members of Panchayats / Municipalities who receive any consideration in performing the functions of that office as such member; or

b) duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

c) duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Government or local authority and who is not deemed as an employee before the commencement of this section.

What is Service

18

What is Service

For the purpose of scope of service -

(a) an unincorporated association or a AOP and a member thereof shall be treated

as distinct persons;

(b) an establishment of a person in the taxable territory and any of his other

establishment in a non-taxable territory shall be treated as establishments of

distinct persons.

(c) A person carrying on a business through a branch or agency or

representational office in any territory shall be treated as having an establishment

in that territory

Draft Circular (F. No. 354 /127/2012-TRU dated 27.7.2012) issued for clarification on certain activities / facilities / reimbursements to employees by the employers

(a) Treatment of supplies made by the employer to employees

Amount deducted from salary / paid for service provided by the

employer to employee is for consideration and hence taxable

Employer who provides some services free of cost (e.g. crèche,

gymnasium or a health club) are not liable to tax

(b) Treatment of reimbursements made by the employer to the

employee

Reimbursements of expenditure incurred on behalf of the

employer in course of employment would not amount to a

service, hence non-taxable

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Employer’s Facilities to Employees

(c )Treatment of supplies and reimbursements made by the employer to ex-employees/ pensionersSame tax treatment for ex- employees of the

company – Reimbursement of expenses on behalf of company – non-taxable ? Facilities for consideration – taxable Facilities free of cost - non taxable ?

20

Employer’s Facilities to Employees

Director’s Services to Company - Taxable

Director’s services to the company are taxable w.e.f 1.7.2012

Sitting fees, commission, bonus, etc. are subject to service tax

W.e.f. 1.7.2012 upto 6.8.2012, service tax to be deposited by the directors while from 7.8.2012 vide Notification No. 45/2012, Service Tax on such services will be deposited by the company under reverse charge

WTDs /MDs /EDs who are under contractual employment with the company and receive salary or remuneration from the company will not be covered - considered as employees of the company

21

Director’s Services to company- Taxable

Interest paid on loan by director to company, dividend on shares, other professional charges on account of services not rendered as a director (in professional capacity) are not liable to Service Tax under reverse charge

In case of nominee director, the nominating company who receives fees will be liable to pay service tax

The invoice / receipt to be issued by the directors within 30 days

In case of nominee directors, the invoice will be issued by the nominating company if payment made to such Company

In the case of Government nominees, the services shall be deemed to be provided by the Government but liable to be taxed under reverse charge basis (support service)

22

Remuneration to Partner – Not a Service

Partnership firm is not a distinct legal entity apart from the partners under the Partnership Act, 1932

Partner is not an employee of the firm -contract of employment requires two distinct firms, viz., employer and employee

Partners are the real owners of the assets of Firm to the extent of their share

Salary paid to partner is only profit known by a different name

It is only a transaction in moneyIncomes received from firm treated as income from

Profits and Gains of Business or Profession under I T Act, 1961

Partnership Act, 1932 can not be over-looked 23

Examples of new activities which may be taxed

Non commercial construction for non-government purpose

Private roads (not meant for general public) Residential construction of more than one unit Commercial artists/performers Film actors/ directors /reality show judges Tourism boats Board director’s sitting fee Non-compete fee Arbitrators to business entities Discourses and lectures/ yoga classes Public parking to

be contd..

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25

Banking services to Government Unrecognized IPRs Services to RBI Hotel telephone calls Video library facilities by hotels Matrimonial sites Astrologers Laundry services Works contracts for movable properties All sub-contracts except exempted works contracts On board catering and other facilities Executive Lounge at railway station/ airport

Examples of new activities which may be taxed

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Section 66 (upto 30.6.2012)

There shall be levied a tax @ 12 percent of the value of taxable services as referred to in section 65(105), i.e., taxable services

Not to apply w.e.f. 1.07.2012

Charge of Service Tax

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Section 66B (W.e.f 1.7.2012)

There shall be levied a tax at the rate of twelve per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed


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Essential ingredients for charge of Service TaxThere should be a service involvedSuch service should not be one included in the

negative list as defined in section 66D.Services should be provided or agreed to be provided.Services should be provided in the taxable territory

only.Services should be provided by one person to another

person.Tax shall be levied on value of services so provided or

agreed to be provided.Collection shall be in prescribed manner.


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Provided or to be provided v. provided or agreed to be provided

Before actual provision of service is made, all relevant information on chargeable event must be known

On account advance payment without any identification of services or activities may not be liable to service tax

Services which have only been agreed to be provided but are yet to be provided are taxable

Receipt of advances for services agreed to be provided become taxable before the actual provision of service

Advances that are retained by the service provider in the event of cancellation of contract of service by the service receiver become taxable as these represent consideration for a service that was agreed to be provided.


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Declared Services Clause 44 of section 65B defines service – it includes a declared service.

There are 9 categories of services or activities as declared services implying that on all such nine declared services, Service Tax shall be payable

Does not include any such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of Article 366(29A) of the Constitution of India.

What is declared services is defined in section 65B(22) to mean any activity carried out by a person for another person for a consideration and declared as such under section 66E of the Act.

They are amply covered by the definition of service but have been declared with a view to remove any ambiguity for the purpose of uniform application of law all over the country

Renting of Immovable Property

Renting (Section 65B (41)) -allowing, permitting or granting access, entry, occupation, usage or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property

Renting of certain kinds of immovable properties is specified in the negative list • Renting of vacant land, with or without a structure incidental

to its use, relating to agriculture.• Renting of residential dwelling for use as residence• Renting out of any property by Reserve Bank of India• Renting out of any property by a Government or a local

authority to a non-business entity

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Declared Services

Renting of Immovable Property

Exemptions to Renting of Immovable property

Threshold level exemption up to Rs. 10 lakh.

Renting of precincts of a religious place meant for general public is exempt.

Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent is exempt.

Renting of immovable property to / by educational institution in respect of exempted education (W.e.f. 1.04.2013)

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Declared Services

33

Declared Services

Nature of Activity Taxability

Renting of property to educational body Not chargeable to service tax; exemption

Renting of vacant land for animal husbandry or floriculture

Not chargeable to service tax as it is covered in the negative list entry relating to agriculture

Permitting use of immoveable property for placing vending/dispensing machines

Chargeable to service tax as permitting usage of space is covered in the definition of renting

Allowing erection of communication tower on a building for consideration.

Chargeable to service tax as permitting usage of space is covered in the definition of renting

Renting of land or building for entertainment or sports

Chargeable to service tax as there is no specific exemption.

Renting of theatres by owners to film distributors

Chargeable to service tax as the arrangement amounts to renting of immovable property.

Renting of immovable property outside India not taxable in India even if owners are in India

Construction Activities [Section 66E (b)] Construction activities means construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority.It includes construction of -

Complex Building Civil structure or part thereof Complex or building intended for sale to a buyer except

where entire consideration is received after issuance of completion certificate by the competent authority.

Actual sale after construction-if any consideration received before such completion certificate, it will also be taxed.

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Declared Services

Construction Activities [Section 66E (b)]

Construction is not defined

Construction includes additions,

alteration,

replacement, or

remodeling

of any existing civil structure 35

Declared Services


Who is Competent Authority to issue Completion Certificate

Government

Any authority authorized to issue CC under any law

In absence of any requirement to issue CC,

• Architect under Architect Act, 1972

• Chartered Engineer registered with Institution of

Engineers

• Licensed surveyor (of local body / development or

planning authority)

36

Declared Services


Residential Complex

Complex comprising of one or more buildings having more than one

residential unit

Even two units would be called ‘complex’

Single residential unit – self contained residential unit designed for

use, wholly / principally, for residence of one family

Original work – new construction and all type of addition / alteration

to abandoned / damaged structures on land as are required to make

them workable / erection , commissioning, installation.

Sale of developed plots is a service (Narne Constructions Pvt. Ltd. v

UOI 2013 (29)STR 3 (SC)

37

Declared Services

38

Temporary transfer or permitting the use or enjoyment of any intellectual property right [Section 66 E (c)]Intellectual property right’ has not been defined but Intellectual property right includes : Copyright

Patents

Trademarks

Designs

Any other similar right to an intangible property

Declared Services

Intellectual Property Rights

Examples of IPRs Patents - New technical, concepts,

inventions Copyright - Text, graphics, software, data

compilations, art, music Trademarks - Brands (Services/ Products)

image and reputation Confidential Information - Ideas, information, know-how,

processes etc. Design Rights -Form and appearance,

decoration, apparels

39

Declared Services


What is taxed in IPR

all IPRs (whether recognized in law or not)

excluding copy rights

temporary transfer of IPRs

permitting the use of IPRs

enjoyment of IPRs40

Declared Services


Copyrights as IPRs are exempted which include :

literary work

dramatic work

musical work

artistic works

cinematograph films ( for exhibition in halls w.e.f

1.4.2013)

41

Declared Services

Information Technology Software related services [section 66E(d)]

It includes following in relation to Information Technology

Software (ITS) –

Development

Design

Programming

Customization

Adaptation

Upgradation

Enhancement

Implementation 42

Declared Services

Information Technology SoftwareITS is defined in Section 65B(28) Representation in ITS should be of any of the following –

• Instruction• Data • Sound • Image • Source code • Object code

Such items represented should be recorded in a machine readable form,

Such items represented and recorded should be capable of being manipulated.

They should provide interactivity by way of a – • computer, or • automatic data processing machine, or • any other device or equipment

43

Declared Services

Information Technology Software

Scope of ITS Service

Design - plan, scheme

Programming - process of writing a computer programme

Customization - modifying to meet a specific requirement

Adaptation - change to suit, adopt

Up gradation - raising standard, improving quality / version /

features

Enhancement - in value, content, quality

Implementation - execution 44

Declared Services

Agreeing to an obligation to refrain from an Act / to tolerate Act or situation / to do an Act [section 66E(e)]

Following activities if carried out by a person for another for consideration would be treated as provision of service -

Agreeing to an obligation to refrain from an act.Agreeing to an obligation to tolerate an act or a

situation.Agreeing to an obligation to do an act.

45

Declared Services

Obligations / ActionsExamples of Taxable Obligations / ActionsNon-compete fees for agreeing not to compete compensation on termination of business agreementsadvance forfeited for cancellation of agreement to

provide a service. forfeiture of security deposit for damages done by

service receiver in course of receiving of services. cancellation charges being charged by airlines, hotels

etc.consideration for non-appearance in a court of law or

withdrawal of suit.demurrage charges or detention charges

46

Declared Services

Transfer of goods by hiring, leasing, licensing [66E(f)]

There should be transfer of goods involved Such transfer of goods should be by way of –

hiring leasing licensing, or any such manner

Such transfer should be without transfer of right to use such goods.

Excludes intangible goods Only goods [section 65B(25)] covered

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Declared Services

Transfer of Goods by Hiring etc.Transfer of right to useTaxable only when transfer of right to use goods is

not there Constitutional / legal concept Can be determined when agreement is read in

whole, not just one clause Transfer of right to use is deemed sale u/s 366(29A)

of Constitution If owner retains effective control, no transfer of

right can take place Service excludes deemed sale u/s 366(29A)

48

Declared Services

Transfer of Goods by Hiring etc.Tests laid down by Supreme Court in BSNL v UOI [(2006)2 STR

161 (SC)] There must be goods available for delivery ; There must be consensus ad idem as to the identity of the

goods; The transferee should have legal right to use the goods –

consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee;

For the period during which the transferee has such legal right, it has to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute, viz., a ‘transfer of the right to use’ and not merely a license to use the goods;

Having transferred, the owner cannot again transfer the same right to others

49

Declared Services

50

Transfer of Goods by Hiring etc

Examples of transfer without right to use

Car on hire with driver – right to use not transferred

Conditional supply of equipment – not free to use goods

Bank lockers – possession not transferred to hirer

Scaffolding structure for temporary purpose – no transfer of

right / effective control and possession

Hiring of Pandal / Shamiyana – No effective control

Hiring of audio visual equipment with attendant – no transfer

of right / possession

Declared Services

51

Declared Services

Delivery of goods on hire purchase / installments [Section 66E(g)]

Includes delivery of goods on -

hire purchase

any system of payment by installment

Payment in parts / installments

Lease payment is calculated so as to cover full cost of asset

together with interest charges

Transfer of substantially all risks and rewards in relation to goods

so transferred

Not taxable as covered under deemed sale of goods

But services in relation to such sale taxable

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Delivery of goods on hire purchase / installments [section 66E(g)]

Delivery of goods on hire purchase Transfer of possession (and not just of custody) The hirer has the option or obligation to purchase the goods in

accordance with the terms of the agreement. In hiring, hirer has no such option and risks remain with owner /

not transferred to hirer In hire purchase, hirer has option / obligation to purchase goods Operating lease not covered Involves two transactions – financial transaction and hire

purchase. Financial transaction is chargeable to Service Tax [Association of Leasing & Financial Services v. Union of India (2010) 20 STR 417 (SC)].

Service Tax levied only on 10 percent value representing interest in financial lease and not full value (Notification No. 26/2012-ST)

Declared Services

53

Declared Services

Works Contract [65B(54)]

“Works Contract” means a contract wherein transfer

of property in goods involved in the execution of such

contract is leviable to tax as sale of goods and such

contract is for the purpose of carrying out

construction, erection, commissioning, installation,

completion, fitting out, repair, maintenance,

renovation, alteration of any movable or immovable

property or for carrying out any other similar activity

or a part thereof in relation to such property.

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Declared Services

Works Contract covers ConstructionErection Commissioning CompletionFitting out Repair Maintenance RenovationAlteration, or Any other similar activity or part there of

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Declared Services

Some issues in works contracts

Labour contracts Excluded

Repair & Maintenance of motor vehicles

yes if property in goods transferred in execution of WC

Construction of pipeline / conduit yes, structures on land

Painting / repair / renovation of building , wall tiling, flooring etc.

yes if involves provision of material also

Erection/commissioning installation of plant/ machine etc

yes if transfer of property in goods is involved and machinery etc

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Declared ServicesValue of service portion in execution of work contract = gross amount charged

for works

contact less value of transfer of property in goods involved in execution of works contract Gross amount includes Gross amount does not include

Labour charges for execution of the works Amount paid to a sub-contractor for labour and servicesCharges for planning, designing and architect’s fees

Value of transfer of property in goods involved in the execution of the said works contract.where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract. (Rule 2A explanation)

Cost of establishment of the contractor relatable to supply of labour and services and other similar expenses relatable to supply of labour and services

Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract

Profit earned by the service provider relatable to supply of labour and services

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Declared Services

Alternative valuation model (Rule 2A of Valuation Rules) Where works contract is for… Value of the service portion shall

be…

(A) execution of original works forty percent of the total amount charged for the works contract

(B) maintenance or repair or reconditioning or restoration or servicing of any goods

seventy per cent of the total amount charged including such gross amount

(C) in case of other works contracts, not included in serial nos. (A) and (B) above, including contracts for maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings.

sixty percent of the total amount charged for the works contract

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Declared Services

Valuation of service portion in Works Contract Total Value = Sum total of

+ gross amount charged + value of goods and services supplied free of

cost for use in or in relation to execution of

WC whether us same contract /any other contract

+ value of land charged as part of total consideration

- amount charged for such goods / services, if any

- VAT levied, if any If value of FOC goods / services is not ascertainable, it will be

determined on basis of fair market value having close resemblance FMV based on generally accepted accounting principles No Cenvat available on goods / inputs used in works contract

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Declared Services

Service portion in supply of food and drinks [section 66E(i)] Supply of food and drinks is deemed sale and hence not taxable

However, only service portion in deemed sale is sought to be taxed

Service portion in activity wherein goods, being food or any other

article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity is a declared service.

Levy of Service Tax on services provided by only such restaurants where service portion in total supply is substantial and discernible

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Service portion in supply of food and drinks [section 66E(i)] Restaurants provided conditional exemption

Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other then those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverage.

W.e.f. 1.04.2013, and has been deleted and thus, all AC restaurants will be taxable

Threshold exemption What activities are covered –

• Supply of food or drinks in a restaurant; • Supply of food and drinks by an outdoor caterer.

Declared Services

61

Declared ServicesService portion in supply of food and drinks [section 66E(i)]

in a restaurant -40% of total value charged

by outdoor catering - 60% of total value charged

Exemption under Notification No. 25/2012-ST to mid day meal scheme and restaurants without bar license / air conditioning / central heating facility

Abatement @ 30% under Notification No. 26/2012-ST provided Cenvat credit is not taken on goods

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Bundled Services

Principles of Interpretation of specific description of services [section 66F]

Section 65A dealing with classification of taxable services omitted w.e.f. 1.7.2012

useful in deciding whether a service falls in negative list / exemptions / declared services

composite v bundled service bundled service –

collection of services / tied up services more than one service element of one service combined with element of provision of

other service (s). Examples - Mailing done by RTI, Air traveling and catering therein Earlier issue – which taxable service Now – whether any activity is a ‘service’ or not a ‘service’.

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Bundled Services

Rule 1 Reference to main service can not be used for services used for

providing the main service If some service is provided with reference to provision of main

service, it does not be come main service, Related services do not take the colour of main service. Examples

Provision of access to any road or bridge on payment of toll Security services IT related services Contract commission

Transportation of passengers by rail Air travel agency Tour operators

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Bundled Services

Rule 2Most specific description to be preferred over more

general description for services capable of differential treatment

for any purpose based on its description Examples

Real estate agent for immovable property• If taxed as intermediary, his location is important • If taxed as immovable property, location of property is

important Outdoor catering by pandal & shamiana / convention to be

taxed as specific combined entry exist for abatement and not as individual services

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Bundled Services

Rule 3Taxability of naturally bundled services in ordinary course of business

If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character

Perception of service provider / service receiver Trade practice Example

• Packaged hotel accommodation for convention delegates may include Hotel room accommodation Breakfast Tea / coffee during conference to be

contd…

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Access to gym / health club / pool Internet Business centre Sight seeing

Could be considered as naturally bundled convention services as each activity is taxable but does not provide essential character and taxed accordingly

Indicators of naturally bundled services There is a single price or the customer pays the same amount, no

matter how much of the package they actually receive or use The elements are normally advertised as a package. The different elements are not available separately. The different elements are integral to one overall supply – if one or

more is removed, the nature of the supply would be affected. Each case to be individually examined

Bundled Services

67

Rule 4 Taxability of services not naturally bundled in

ordinary course of business If various elements of a bundled service are not

naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax.

Examples Renting of two floors or two portions of building by a

common agreement (treated as commercial use) Management of event covering advertisement,

promotion, space booking, photography, videography, public relation etc.

Bundled Services

Taxation of Cross Border Services

Peculiar Features in Cross Border Services

Service tax is a destination based consumption tax – International

practice

Double taxation

With export of services, taxes should not be exported (ideally taxed at

point of consumption)

Imports – taxed at the destination

Incentivizing exports of goods and services

Special incentives – rebates, SEZ etc.

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The concerns

How to tax cross border services

How to determine whether the transaction is export

How to determine whether the transaction is import

How to determine place of provision of services

How to value the services so provided

Availing tax exemptions / refunds

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Up to 30.6.2012Up to 30.6.2012

Export of Services Rules, 2005

Export of Services Rules, 2005

W.e.f. 1.7.2012W.e.f. 1.7.2012

Rule 6A of Services Tax Rules, 1994

Rule 6A of Services Tax Rules, 1994

Place of Provision of Services Rules,2012

Place of Provision of Services Rules,2012++

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Taxation of Cross Border Services – Exports


Rule 6A has been inserted in Service Tax Rules 1994 vide

Notification No. 36/2012-ST, dated 20.6.2012

Rule 6A comprises what is export of services

Service will be treated as export if all following conditions are

satisfied -

(a) the provider of service is located in the taxable territory ,

(b) the recipient of service is located outside India,

(c) the service is not a service specified in the section 66D of the Act,

(d) the place of provision of the service is outside India,

(e) the payment for such service has been received by the provider of

service in convertible foreign exchange, and

(f) the provider of service and recipient of service are not merely

establishments of a distinct person. 71


Rule 6A of Service Tax Rules, 1994

India + Indian currency = Taxable

India + Foreign currency =Taxable

Non-taxable territory + Indian currency =

Taxable

Non-taxable territory + Foreign currency =

Export / Exempt

72


Taxable Services to qualify as import if -

Service provider located in Non-taxable

Territory

Service recipient located in Taxable

Territory

Import services from outside India - pay

local taxes on reverse charge mechanism

73


How to Determine Taxability –i) Which rule applies to the service provided specifically? In

case more than one rules apply equally, which of these come later in the order given in the rules?

ii) What is the place of provision of the service in terms of the above rule?

iii) Is the place of provision in taxable territory? If yes, tax will be payable. If not, tax will not be payable.

iv) Is the provider 'located' in the taxable territory? If yes, he will pay the tax.

v) If not, is the service receiver located in taxable territory? If yes, he may be liable to pay tax on reverse charge basis.

vi) Is the service receiver an individual or government receiving services for a non-business purpose, or a charity receiving services for a charitable activity? If yes, the same is exempted.

vii) If not, he is liable to pay tax.74


Place of Provision of Service Rules, 2012

Purpose is to identify taxing jurisdiction for a service

In earlier regime focus was to determine taxability in case of

exports and imports only.

Present rules replace Export and Import Rules and define local

jurisdiction

Meant for cross border services, services to J & K, service

providers operating from multiple locations, determining services

wholly consumed in SEZ and a precursor to GST.

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Important Terms of POPS Rules, 2012

Taxable Territory [Section 65B(52)] –Taxable territory means

the territory to which the provisions of this chapter apply.

(Taxable territory = India – J & K State)

Non-taxable Territory [Section 65B(35)] – Non-taxable

territory means the territory which is outside the taxable

territory.


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Location of service provider -

Business establishment – Place where essential decisions concerning the

general management are adopted and functions of its central

administration are carried out. A service provider or receiver can have

only one business establishment

Fixed establishment -Place other than Business Establishment which has

permanent presence of human and technical resources to provide or

receive service

Usual place of residence –

Body Corporate : place where incorporated

Individual : place where he spends most of his time for the period in

question or where he lives with his family and is in full time employment.

An individual cannot have more than one place of usual residence.

78

Taxation of Cross Border ServicesLocation of the service provider

(a) where the service provider has obtained a single registration, whether centralized or

otherwise, the premises for which such registration has been obtained

(b) where the service provider is not covered under sub-clause (a):

(i) the location of his business establishment; or

(ii) where the services are provided from a place other than the business

establishment or a fixed establishment elsewhere, the location of such

establishment; or

(iii) where services are provided from more than one establishment, whether

business or fixed, the establishment most directly concerned with the provision of

the service; and

(iv) in the absence of such places, the usual place of residence of the service

provider. 79


Location of the service receiver

(a) where the recipient of service has obtained a single registration, whether centralized

or otherwise, the premises for which such registration has been obtained;

(b) where the recipient of service is not covered under sub-clause (a):

(i) the location of his business establishment; or

(ii) where services are used at a place other than the business establishment, a fixed

establishment elsewhere, the location of such establishment; or

(iii) where services are used at more than one establishment, whether business or

fixed, the establishment most directly concerned with the use of the service; and

(iv) in the absence of such places, the usual place of residence of the

recipient of service.

80


India [U/s 65B(27)]

(a) the territory of the Union according to Article 1 clauses (2) and (3)

of the Constitution;

(b) its territorial waters, continental shelf, exclusive economic zone or

any other maritime zone ;

(c) the sea-bed and the sub-soil underlying the territorial waters;

(d) the air space above its territory and territorial waters; and

(e) the installations, structures and vessels located in the continental

shelf of India and the exclusive economic zone of India, for the

purposes of prospecting or extraction or production of mineral oil and

natural gas and supply thereof;81


S. No. Conditions Tax Liability

1 Both service provider and service receiver are in taxable territory

Service provider

2 Service provided from taxable territory in non taxable territory (except J & K)

No tax (Export)

3 Service provided from non-taxable territory (including J & K) in taxable territory

Service receiver (Import)

4 Both service provider and service receiver are in non-taxable territory

No service / No tax

82

POPS - At a GlanceRule Governing Situation Place of Provision of Service

3 General RuleIf recipient's location not available in the ordinary course of business

Location of Service ReceiverLocation of Service Provider

4 Service provided in respect of goods that are required to be made physically available by the service receiver to the service provider t o provide the service When such services are provided from a remote location by way of electronic meansThis rule shall not apply in case of service provided in respect of goods temporarily imported into India for repair or re-export.

Service provided entirely or predominantly in the physical presence of an individual.

Location where service is performed.

Location where the goods are situated at the time of provision of service

Location where service is performed.

5 Immovable property based services provided directly in relation to an immovable property (includes grants of right to use immovable property, services for carrying out or coordination of civil work)

Location or proposed location of immovable property

83

POPS - At a Glance

84

Rule Governing Situation Place of Provision of Service

6 Services in relation to an event Location of event

7

If services referred to in Rules 4, 5 & 6 provided in many locations, including location in taxable territory.

Taxable territory in which greatest proportion is provided

8Where service provider and service receiver located in taxable territory

Location of service receiver

9

Specified services of banking, online data base, intermediary services and hiring means of transport up to one month.

Location of service provider

10 Goods transport service Goods transportation agency services

Destination of goods Location of person liable to pay tax

POPS - At a Glance

Rule Governing Situation Place of Provision of Service

11

Passenger transport services

Where the passenger embarks on the conveyance for continuous journey

12

Services provided on board a conveyance

First scheduled point of departure.

14Order of application of rules

Later rule to supersede.

85


Rule 3- Default Rule

The main rule or default rule provides that a service shall

be deemed to be provided , where the receiver is located

In case, when location of the service receiver is not

ascertainable, location of the service provider is the

place of provision of service

This rule is applied when none of the other later rules

apply

86


Rule 14- Order of Application of Rules

Where more than one rule applies, rule that

occurs later is relevant rule

87

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THANK YOU

FOR

YOUR

PRECIOUS TIME

AND

ATTENTION

Dr. Sanjiv Agarwal

FCA, FCS, Jaipur

[email protected]

[email protected]

mumbai prentation 17.4.2013 (session ii)

Education

money service

aprovision of service

service tax6

specified services

declared service 66e4

broad services

scope ofdefinition of

service narne constructions